WAYS & MEANS.

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Author: Selingo, Jeffrey

The U.S. secretary of education, Margaret Spellings, has decided that the New Mexico Educational Assistance Foundation, a nonprofit lender that the Education Department's Office of the Inspector General has accused of overcharging the government by up to $36-million in payments to subsidize student loans, will not have to pay the money back.

The inspector general's report, issued in May, recommended that the department require the foundation to return what the report called overpayments. In a statement this month, Ms. Spellings commended the inspector general's report but said the New Mexico foundation had "complied with applicable laws, regulations, and department guidance."

At issue were payments that the Education Department had made to the foundation to finance new student loans with tax-exempt bonds. In the 1980s, Congress allowed nonprofit lenders a guaranteed return of 9.5 percent to protect them at a time when the economy was sour and the costs of making loans were soaring. Congress stripped away that advantage in 1993 but grandfathered in loans already made.

Most nonprofit lenders, though, have been financing new loans with the pre-1993 bonds, which they have refinanced.

Under a practice known as recycling, lenders get the guaranteed 9.5-percent return on new loans they make with funds from payments they have received on loans financed with the bonds. Students, meanwhile, pay an interest rate on their loans of about 3.4 percent, and the government has had to make up the difference.

Eugene W. Hickok, who stepped down as deputy secretary in the U.S. Education Department in December, has joined Dutko Worldwide, a lobbying firm, where he will serve as senior policy director in charge of education practice.

"Gene Hickok is simply one of the most respected and skilled education-policy experts in the country," Craig Pattee, Dutko's president, said in a statement.

While Mr. Hickok focused mostly on elementary and secondary education during his time at the Education Department, he has also been a forceful proponent of making colleges more accountable for graduating their students in a timely fashion.

As Pennsylvania's secretary of education, a job he held for six years before joining the Bush administration, he pushed the legislature to create a grant program to reward institutions that graduated at least 40 percent of their in-state students within four years.

Federal officials have expressed interest in asking Congress to create a federal program based on the Pennsylvania model.

Mr. Hickok started at the Education Department as an under secretary in 2001. He became deputy secretary in 2003.

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By Jeffrey Selingo